Critical Test Ahead for Crude Oil

Since last writing on the crude oil market in the short-term, the price of
oil has risen to our previously forecast upside target $48 area. This was underscored
by the parabolic bowl shown in the previous report (entitled "Crude
Oil in the Short-Term"). The bowl did an admirable job of shepherding the
oil price to its current high level.

As discussed last time, crude oil tends to travel along a series of concentric
curves and most notably the parabolic arc. These may take the form of bowls
or domes, and at any given time a series of interlocking bowls and domes are
present the chart (largely invisible to the naked eye without the aid of drawing
tools). The previous advance in the price of crude was guided by a large parabolic
bowl, which was broken shortly after the October peak.

The short-term bowl we looked at in late December kept the autumn decline
in the oil price from going straight down in rapid fashion. This smaller bowl
still looks to keep the oil price afloat above the pivotal$40 area in the short-term;
however, I believe we could witness a critical test of this bowl near the $40
area in the weeks immediately ahead.

Notice that the latest crude oil rally is about to hit potentially strong
resistance at an upper trend channel boundary. This channel boundary also happens
to converge with a rather large parabolic dome in the daily chart stretching
back to July (and peaking in October with the price high in crude). This parabolic
dome is still the dominant feature for the crude price right now and until
it becomes exhausted it still must be respected. Based on the dynamics of this
chart, a decline back down to re-test the recent lows at the $40-$42 area appears
likely.

Clif Droke is a recognized authority on moving averages and internal
momentum. He is the editor of the Momentum Strategies Report newsletter,
published since 1997. He has also authored numerous books covering the fields
of economics and financial market analysis. His latest book is Mastering
Moving Averages. For more information visit www.clifdroke.com